CNOOC’s Nexen Buy: Doomed to Fail? 中海油收购Nexen注定失败？
It’s been less than 2 weeks since Chinese oil major CNOOC (HKEx: 883; NYSE: CEO) announced its blockbuster plan to buy Canadian oil company Nexen (Toronto: NXY), and already we’re seeing swirls of controversy emerging in reports of insider trading and the hiring of political heavyweights around the deal. But I’m fairly certain these tales of minor intrigue are just a preview to the main show, which will see Canada and the US launch national security investigations that will ultimately sink this $15 billion deal.
Let’s look first at the latest reports surrounding this deal, which would be China’s largest in North America and comes against a broader backdrop of a global buying spree by cash-rich Chinese energy giants trying to fulfill Beijing’s directive to make the country more energy self-sufficient. Foreign media are reporting that the US securities regulator is accusing a Hong Kong-based Chinese investor Well Advantage Ltd of making $7 million in illegal profits by purchasing Nexen shares 4 days before announcement of the deal. (English article) A separate report says that CNOOC hired 2 lobbying groups to help it reach the deal, which would give CNOOC the right to search for oil in US territory in the Gulf of Mexico under rights currently held by Nexen. (English article)
Nexen’s headquarters in Canada and its drilling rights in the Gulf of Mexico mean both the US and Canada will have to review the purchase, which either could veto on national security or other grounds. CNOOC and investors in general clearly don’t have very long memories, otherwise they might recall a similar deal that got killed on national security grounds in 2005 when CNOOC tried to buy US oil firm Unocal. Nexen shares jumped more than 50 percent after the deal was announced more than a week ago, and have managed to maintain most of their gains since then.
These 2 reports following the initial big announcement don’t really surprise me too much, and probably reflect the huge appetite for news surrounding a deal that exemplifies China’s huge appetite for global resources. I have little doubt that the insider trading allegations are true, as insider trading is a rampant problem in China and leaks about a deal of this size are inevitable. The news about the lobbyists also isn’t very surprising, since companies of any nationality will often hire such advisers for any kind of deal with sensitive overtones.
But these 2 early side stories reflect the fact that Americans and Canadians will be closely watching this deal as it evolves, and I have little or no doubt that we’ll see politicians in both countries soon calling for the deal to get vetoed over national security concerns. US politicians seeking to raise their profiles during this important election year have already set their sights on telecoms equipment maker ZTE (HKEx: 763; Shenzhen: 000063), calling for an investigation over allegations the company sold computer equipment to Iran in violation of US sanctions. (previous post) And then of course there’s the frivolous complaint by a US senator over the use of Chinese-made uniforms for US Olympic athletes that erupted several weeks ago.
This Nexen deal is of course much more serious, and accordingly is likely to attract attention from both US Republicans and Democrats seeking to raise their profiles before the November election. With that kind of climate, look for politicians to raise their first objections to this deal in the next 1-2 weeks, and for the deal itself to die a stormy death by the end of this year.
Bottom line: New tales of intrigue over CNOOC’s plan to buy Canada’s Nexen are just a prelude to the voicing of major concerns by US and Canadian politicians that will ultimately sink the deal.
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